The Guardian view on industrial policy: consistency, not catchphrases
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Version 0 of 1. Few economic policies have become so fashionable so fast as industrial policy. From being almost taboo 10 years ago it is now the phrase on every frontbencher’s lips. In a hot-ticket event on Tuesday the Commons business and industry committee will hear from the former chancellor George Osborne, the former business secretary Vince Cable and the veteran advocate of industry policy Lord Heseltine on post-Brexit strategy. At its conference in Birmingham last week, Tories from the business secretary, Greg Clark, to Theresa May promised “a proper industrial strategy”. Labour’s John McDonnell wants one too. So many politicians now want something called an industrial policy that the term risks becoming almost meaningless. The chancellor, Philip Hammond, suggested that “the limiting factor [for new regional industrial policies] may only be our ability to think up snappy titles”. There have certainly been plenty of those. Over the past six years alone, Conservative ministers have promised: a rebalancing of the economy, a march of the makers, a northern powerhouse, and now a “Midlands engine”. In all that time, business investment has remained stubbornly low, and the manufacturing sector has merely edged along, while the trade deficit has rocketed to new highs. Anyone who imagines that all this will be turned around now that the pound’s nosedive has made British exports so much cheaper should remember that sterling took a 25% depreciation after the crash – and no manufacturing miracle came along. Along the way, there has been the worst kind of ministerial dilettantism and inconsistency. Vince Cable spent years talking about industrial policy, while his colleagues awarded train contracts to Siemens. George Osborne dreamed up the northern powerhouse, and his ally Sajid Javid allowed the collapse of the steelworks at Redcar. More seriously, politicians have been over-estimating the strength and scale of British manufacturing. The facts are these: when the UN statisticians measure per head, Britain has less manufacturing than Switzerland. When looked at by company size, Britain’s businesses are shrinking; manufacturing is often less about huge or even medium-sized factories and more typically one- or two-man bands. Finally, the UK is becoming a branch-plant economy. Germany has the likes of Mercedes and Miele, BMW and Bosch. Britain has nothing comparable. It is instead a domestic manufacturing base that fits together other bits made abroad. Consider the British car industry, usually touted by ministers as proof that manufacturing is alive and kicking. According to the former head of the Automotive Council, two-thirds of all the components in a car, whether from Sunderland or Dagenham, come from abroad. Less Made in Britain than Assembled in Britain. The result is a short and broken supply chain – and one in danger of getting shorter still. Manchester academics can discover graphene (the Nobel-winning work of two Russian émigrés, Ms Rudd) but British industry has lost its capacity to do applied research. OECD figures show that in 40 years Britain’s economy and its businesses have gone from being world leaders in R&D to trailing most of our developed and developing competitors. None of this makes for the sort of happy headlines and clap-ready anecdotes that are the stuff of conference speeches. Practically, it is important to recognise that much of this bad news is the result of corporate short-termism. Research budgets have been sacrificed for shareholder returns. Training and employing workers to make things costs money that could otherwise end up in investors’ pockets. A serious industrial policy therefore sits right next to a serious reform of corporate governance and business behaviour, forcing boardrooms to recognise their obligations not just to shareholders but to staff, to the wider community – and to the longer-run staying-power of the enterprise. And industrial policy should not be about “picking winners” and those familiar cliches, but more about rewarding companies that add value here, that employ more people here and pay the living wage. Much of this can be done through the tax code. Rebalancing the economy can also be helped by mandating our state-owned banks to direct more loans to strategically important sectors (green energy and social care, to take two examples) and to regions outside London. Industrial policy has been emptied of much of its meaning in the past few years. But the need for one remains great. |